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Investing

STP in Mutual Funds: How a Systematic Transfer Plan Works

An STP moves a set amount from one mutual fund scheme to another of the same fund house on a schedule; each transfer is a redemption plus a purchase.

PN

Written by Priya Nair

Published 20 October 2026·6 min read

On this page8 sections
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An STP (systematic transfer plan) moves a fixed amount, or a fixed number of units, from one mutual fund scheme to another scheme of the same fund house on a set schedule. Each transfer is a redemption from the first scheme and a purchase in the second, so exit load and capital gains tax can apply every time.

Key facts

Item Rule
What moves Money already invested in one scheme, not fresh money from your bank
Which schemes Both must belong to the same mutual fund (fund house)
How it is processed Redemption from the source scheme plus purchase in the target scheme
Frequency Usually monthly; some fund houses also offer daily, weekly or quarterly
Minimums Set by each fund house
Tax Each transfer can create a capital gain in the source scheme
Demat-held units STP standing instructions to be enabled in two phases, by 31 January 2027 (unit-based) and 30 April 2027 (amount-based)

How an STP works

SEBI describes an STP as a standing instruction for “transferring their investment in one scheme of Mutual Fund to another scheme of the same Mutual Fund, by way of redemption from one scheme and subscription to the other scheme”. AMFI’s investor site puts it the same way and adds that STPs work only between schemes of the same fund house.

A typical set-up looks like this. You have ₹6,00,000 to put into an equity fund but do not want to invest it all on one day. You park it in a liquid or other debt fund of the same fund house and register an STP of ₹50,000 a month into the equity fund. For the next 12 months, units worth ₹50,000 are redeemed from the debt fund on the chosen date, and the proceeds buy units of the equity fund at that day’s NAV. The money waiting in the debt fund keeps earning debt fund returns, which are not guaranteed.

Because the equity units are bought at a different NAV each month, the effect is similar to a SIP. The difference is where the money comes from. A SIP pulls fresh money from your bank account; an STP moves money you have already invested. Our explainer on what a SIP is covers the SIP side.

Fixed, capital-appreciation and flexi STP

Fund houses offer different STP types. The names vary, so read your fund house’s form.

ItemDetails
Fixed STPthe same amount moves on every date. This is the most common type.
Capital-appreciation STPonly the gain in the source scheme is moved, so your original investment stays where it is.
Flexi, variable or value STPthe amount changes by a formula or percentage that the fund house sets, often linked to how the investment’s value has moved.

Minimums also differ. HDFC Mutual Fund, for example, says a monthly fixed or capital-appreciation STP needs at least 6 instalments. Check the scheme’s Statement of Additional Information or the STP form for the figures that apply to you.

Setting up an STP

  1. Invest the lump sum in the source scheme, often a liquid, overnight or short-duration debt fund, of the fund house you want to use.
  2. Pick the target scheme in the same fund house and note its plan (direct or regular) and option.
  3. Fill in the STP form on the fund house’s website or app, or through your distributor or investment platform. Give the source folio, target scheme, amount or units, frequency, start date and number of instalments.
  4. Choose the STP type: fixed, capital-appreciation or flexi, if the fund house offers a choice.
  5. Submit and wait for the confirmation. Registration can take a few working days, so set a start date with some margin.
  6. Track each transfer in your account statement, which shows a redemption line in the source scheme and a purchase line in the target scheme.

If your mutual fund units sit in a demat account, standing instructions for STPs were not available when SEBI issued its circular of 17 July 2026. SEBI asked the depositories to publish a common framework by 31 October 2026, enable unit-based STPs by 31 January 2027 and amount-based STPs by 30 April 2027. Until then, an STP generally needs units held in statement (non-demat) form.

Exit load and tax on each transfer

Exit load

Every transfer is a redemption, so the source scheme’s exit load applies if you redeem within its load period. AMFI tells investors to check the exit load on the debt fund holding the lump sum before starting. Liquid funds charge a small graded exit load on units redeemed within the first seven days, so a first transfer too soon after investing can attract it. The target scheme’s exit load clock starts afresh for each purchase.

Capital gains tax

Each transfer can create a capital gain or loss in the source scheme, taxed in the year of the transfer. For tax year 2026-27 the rules come from the Income-tax Act, 2025:

Source scheme Held 12 months or less Held more than 12 months
Equity-oriented fund 20% 12.5% on gains above ₹1,25,000 a year
Debt fund bought on or after 1 April 2023 (65% or more in debt) Slab rate Slab rate

Most STPs start from a liquid or debt fund, so the gain on each transfer is usually small and taxed at your slab rate. Only the gain is taxed, not the amount moved. Our mutual fund taxation page covers older debt fund units and other cases, and you may want a tax professional for large or complex portfolios.

STP vs SIP vs lump sum

Point STP SIP Lump sum
Where the money comes from Another scheme of the same fund house Your bank account Your bank account, once
Suits A corpus you already have Regular income, such as a salary A corpus you want invested at once
Market timing Spread over the STP period Spread over the SIP period All at one NAV
Idle money Sits in the source scheme Stays in your bank until debited None
Tax events A redemption on each transfer None until you redeem None until you redeem

None of the three is always better. An STP only changes when the money enters the target scheme; it does not change what that scheme earns. To see what a single investment or a monthly one could grow to at an assumed return, try the lump sum calculator.

Frequently asked questions

What is STP in a mutual fund?

A standing instruction to move a set amount or number of units from one scheme to another scheme of the same fund house at regular intervals.

Can I run an STP between two different fund houses?

No. AMFI says STPs can be set up only between schemes of the same fund house.

Is an STP taxable?

Yes. Each transfer is a redemption from the source scheme, so any gain on the units redeemed is taxed as a capital gain in that year.

Is there an exit load on an STP?

There can be. The source scheme’s exit load applies to units redeemed within its load period, including liquid funds’ graded load in the first seven days.

What is the difference between STP and SIP?

A SIP invests fresh money from your bank account. An STP moves money you have already invested in one scheme into another of the same fund house.

Can I start an STP on mutual fund units held in demat?

Not through standing instructions yet. SEBI has asked depositories to enable unit-based STPs by 31 January 2027 and amount-based STPs by 30 April 2027.

Can I stop an STP midway?

Yes. Fund houses let you cancel an STP by request; the money not yet transferred stays in the source scheme. Check the notice period on your fund house’s form.

Sources

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